Property Crime, Earnings Variability, and the Cost of Capital
88 Pages Posted: 22 Dec 2013 Last revised: 25 Apr 2019
Date Written: June 27, 2016
We show that firms located in states where property crime is more prevalent have more uncertain earnings and higher financing costs. Specifically, firms located in states with higher property crime rates have more volatile and less persistent earnings as well as lower quality analysts’ earnings forecasts. Firms located in states with higher property crime rates also have a higher cost of equity and debt capital. These results are robust to accounting for econometric and endogeneity concerns in various ways. Overall, our results suggest that a potentially large and overlooked cost of crime is a higher cost of capital.
Keywords: Earnings variability, Cost of equity, Cost of debt, Property crime, Theft
JEL Classification: G30, M41
Suggested Citation: Suggested Citation